Wendy's to sell stores to speed up renovations

Wendy's Co. will sell 425 of its almost 1,300 company-owned restaurants to franchisees who commit to helping the fast-food operator speed up its aggressive store-renovation program.

Mary Vanac, The Columbus Dispatch

Wendy’s Co. will sell 425 of its almost 1,300 company-owned restaurants to franchisees who commit to helping the fast-food operator speed up its aggressive store-renovation program.

The Dublin-based company began a $500 million plan a year and a half ago to rebrand its 5,800 U.S. restaurants — about 4,500 of them franchised — by replacing some and remodeling the rest.

Selling the stores is expected to save Wendy’s $30 million each year by boosting operating efficiency, as well as strengthen cash flow with higher royalty and rent income. The company plans to work with “successful, well-capitalized” franchisees.

“I think it’s a smart strategic move for the company,” said Will Slabaugh, restaurant analyst for Stephens Inc., the investment management and research company in Little Rock., Ark. “It puts those stores in the hands of franchisees who are locally based and will likely run the stores more efficiently than the company could.”

Yesterday, Wendy’s said it earned $12.2 million or 3 cents a diluted share, in the second quarter, ended June 30. That compared with a loss of $5.5 million, or 1 cent a diluted share, in the year-ago quarter. Sales came to $650.5 million during the quarter, up less than 1 percent from the year-ago period.

The company is riding high after its recent introduction of the Pretzel Bacon Cheeseburger — a premium hamburger with cheddar cheese and bacon on a pretzel bun. It illustrates Wendy’s efforts to create premium products that sell for a fast-food price, said CEO Emil Brolick.

The product, which tested well in markets including northeastern Ohio this spring, “also rekindles the image of Wendy’s as a real product innovator,” Brolick said in an interview. “All the things we’ve been working on in the last 15 to 18 months are starting to produce some results.”

By selling more than 400 stores, Wendy’s expects to reduce the percentage of stores it owns to 15 percent, down from 22 percent, concentrating its ownership in geographic areas where it has the strongest markets.

About $10 million of the savings would be accomplished, in part, by an unspecified number of job cuts at its headquarters in Dublin.

“The ‘people’ impact of this is going to be quite nominal,” Brolick said, referring to the 650 people who work in his company’s Dublin restaurant support center.

Wendy’s will ask franchisees who buy the stores to invest in renovating them. Eventually, the renovations will become compulsory, Brolick told analysts during a conference call yesterday.

Some Wendy’s franchisees are skeptical about whether they can get the return on investment they need by renovating their restaurants.

“It’s a large amount of money,” said Gary Rozanczyk, owner of six Wendy’s in the Columbus area. Renovation costs range between $375,000 and $750,000 per restaurant.

But Wendy’s invested in its company-owned stores first, showing that the remodeled stores could bring in upward of 25 percent more in sales.

This week, Rozanczyk closed his restaurant on Morse Road near Easton Town Center for a major remodeling. He plans to tear down his store on E. Main Street in Reynoldsburg in September to make way for a new restaurant.

“We’re quite excited about our prospects,” said Rozanczyk, a 17-year franchisee of the company.

Selling more stores to franchisees “will also enable us to increase our long-term earnings-per-share growth rate and return incremental cash to shareholders in the form of dividends and share repurchases, beginning with a 25 percent increase in our third-quarter dividend,” Brolick said.

Wendy’s shares rose more than 8 percent yesterday to close at $7.23.

mvanac@dispatch.com

@maryvanac

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